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The month of February witnessed a significant dip in equity mutual fund inflows, marking a 26% decrease to Rs 29,303 crore amidst ongoing market sell-offs. This decline, a substantial departure from the Rs 39,688 crore registered in January and the Rs 41,156 crore in December, signals a growing apprehension among investors amidst persistent market volatility. This marks the second consecutive month of declining inflows, though net equity mutual fund inflows have remained positive for the 48th consecutive month. The primary drivers behind this downturn are attributed to reduced inflows in mid and small-cap funds, which experienced a considerable drop to Rs 3,406 crore and Rs 3,722 crore, respectively, in February. This contrasts sharply with the Rs 5,147 crore and Rs 5,720 crore recorded in January, highlighting a shift in investor sentiment towards these riskier asset classes. Even large-cap funds, typically considered safer havens, saw a reduction in inflows, totaling Rs 2,866 crore, down from Rs 3,063 crore in the preceding month. The Association of Mutual Funds in India (AMFI) data underscores this trend, painting a picture of cautious investor behavior in the face of market uncertainties. Market experts attribute this decline to a confluence of external factors, primarily global trade tensions stemming from uncertainties surrounding US tariffs. Jatinder Pal Singh, CEO of ITI Mutual Fund, pointed out that this period coincided with a significant market correction, with the benchmark BSE Sensex TRI experiencing a month-on-month decline of over 5.5%. This market correction, coupled with geopolitical anxieties, appears to have triggered a risk-averse response among investors, leading to a decrease in equity inflows. Furthermore, gross equity inflows also saw a reduction of 18%, decreasing from Rs 66,630 crores in January 2025 to Rs 54,428 crores in February 2025, further illustrating the prevailing sentiment of caution. This broader market context is crucial to understanding the specific dynamics within the equity mutual fund landscape.
Despite the overall decline in equity mutual fund inflows, certain categories managed to buck the trend. Sectoral/thematic funds witnessed the highest net inflow of Rs 5,711 crore, indicating investor interest in specific sectors or investment themes. Flexi Cap Funds also attracted significant inflows, totaling Rs 5,104 crore, suggesting that investors are seeking diversified investment options that can adapt to changing market conditions. These positive inflows into specific categories offer a nuanced perspective on investor behavior, highlighting a degree of selective investment amidst the broader market cautiousness. The contrasting performance of different fund categories also underscores the importance of diversification and strategic asset allocation in navigating volatile market conditions. While equity funds experienced a slowdown, gold exchange-traded funds (ETFs) saw a notable inflow of Rs 1,980 crore, reflecting a flight to safety as investors sought refuge in the precious metal. This inflow, though lower than the Rs 3,751 crore registered in January, still demonstrates gold's appeal as a hedge against market uncertainty. On the other hand, debt funds experienced an outflow of Rs 6,525 crore last month, contrasting sharply with the substantial inflow of Rs 1.28 lakh crore in January. This shift suggests a potential reallocation of assets away from debt and towards other asset classes, or perhaps a general reduction in investment exposure. Overall, mutual funds attracted over Rs 40,000 crore in February, a significant drop compared to the staggering inflow of Rs 1.87 lakh crore in January. This decline has impacted the overall assets under management (AUM) of mutual funds, which decreased to Rs 64.53 lakh crore at the end of February, compared to Rs 67.25 lakh crore in the preceding month.
Amidst this market volatility, experts are advising investors to remain steadfast in their investment strategies, particularly those involving systematic investment plans (SIPs). Suranjana Borthakur, Head of Distribution & Strategic Alliances at Mirae Asset Investment Managers (India), acknowledged a slight dip in SIP inflows but emphasized that the drop is not significant. She strongly encourages investors to continue their SIP flows, viewing the current market conditions as an opportune time to accumulate units. This recommendation reflects a long-term investment perspective, suggesting that market corrections can present valuable buying opportunities for investors who are committed to their financial goals. The emphasis on SIPs also underscores the importance of disciplined investing, which involves regularly investing a fixed amount regardless of market fluctuations. This approach can help investors to average out their purchase costs over time and potentially benefit from market rebounds. The broader message from market experts is one of resilience and patience. While market volatility can be unsettling, it is important for investors to avoid making impulsive decisions based on short-term market movements. Instead, they should focus on their long-term investment goals and maintain a diversified portfolio that is aligned with their risk tolerance. Seeking professional financial advice can also be beneficial in navigating complex market conditions and making informed investment decisions. In conclusion, the decline in equity mutual fund inflows in February reflects a cautious investor sentiment amidst market volatility. However, experts emphasize the importance of staying the course and continuing with SIP investments, viewing market corrections as opportunities for long-term growth. A diversified portfolio, disciplined investment strategy, and professional financial advice can help investors navigate market uncertainties and achieve their financial goals.